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Internet deal faces EU scrutiny

LAST week’s American multi-million dollar deal between US telecoms operator WorldCom and Internet service providers America Online and CompuServe is set to face tough anti-trust scrutiny by European Commission cartel-busters.

Although the ink has yet to dry on the 1.2-billion-ecu deal, which sees WorldCom and AOL buying CompuServe and splitting its assets between them, officials are hinting at Commission fears that the move may be anti-competitive.

“It aroused interest. It is still in the making, but [Competition Commissioner Karel] van Miert has made it clear before that we will follow the Internet cases with interest,” said one.

Under the deal, WorldCom gets CompuServe’s network infrastructure while AOL gets its customers and content. For an extra 162 million ecu, WorldCom has also bought the Internet network of AOL and Germany’s Bertelsmann has paid AOL 69.5 million ecu to share in CompuServe’s European operations.

Although the deal’s main players are US firms officials say it will have important repercussions on the EU Internet market. “This will have control in Europe to a certain extent. Private Internet service providers may be squeezed on one side and the telecom operators on the other,” said one.

A key cause for concern is that the deal could jeopardise the finely balanced economics of the Internet, which have so far meant that data is carried free of charge between different parts of the network, with users only paying for local calls to link up to their service providers in addition to their monthly subscription charges.

The telecom operators, Internet service providers, universities and multinational companies which own the collection of connected wires and computer servers that make up the Internet have traditionally allowed data to be routed from other parts of the network without charging for this service through so-called ‘peering’ arrangements.

“Peering is where companies that control Internet traffic say ‘I won’t charge you if you don’t charge me’. That’s why the Internet is so cheap. They depend on this,” said a source.

The fear is that if one firm such as WorldCom controls too much of this Internet ‘backbone’, it will be able to restrict the flow of data and charge for access to the customers that use it.

The next step is for the companies involved to notify competition officials of the structure of the deal, said the source.If the deal is notified as a merger case, the Commission’s scrutiny will then focus on the combined turnover of the companies inside the Union.

Under EU merger rules, the Commission can open a formal merger inquiry if the world-wide turnover of the companies involved in the deal is more than 5,000 million ecu and if each one has EU activities worth more than 250 million ecu.”It’s really at an early stage. We have to see how it relates to the thresholds, if it is notified under merger regulations of the treaty,” said the official.But he added that even if these thresholds were not met, the Commission was still likely to voice its concerns over the deal in tandem with US anti-trust authorities – and individual EU member states were also likely to want to examine the potentialanti-competitive effect of the WorldCom and AOL carve-up.

“The impact of this is going to be very big in some member states. This is probably a dramatic event for the Internet,” he said.